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On Monday, Goldman Sachs maintained its ’Buy’ ratings for Deere & Company (NYSE:DE), Caterpillar Inc. (NYSE:CAT), and United Rentals , Inc. (NYSE:URI), citing a positive shift in machinery capital stock. The firm’s analysts highlighted a decrease in capital stock for the first time in three years, coupled with a period of under-production and dealer inventory destocking. They also noted that current estimates already factor in the full impact of tariffs and that there is potential for valuation upside based on mid-cycle earnings.
The bullish stance is not predicated on tariff outcomes or an acceleration of the underlying economy but is rather a supply-side perspective indicating potential gains beyond economic cycles. Throughout 2023-24, Goldman Sachs has been selective in the Machinery sector due to capital stock growth. However, their latest Machinery Supply tracker has revealed a positive inflection in machinery capital stock, which has led to investor inquiries about how shifts in used equipment inventories have played out in previous cycles. Despite analysts forecasting a 27% revenue decline for FY2025, Deere has demonstrated strong market performance with a 26% price return over the past six months. For deeper insights into Deere’s valuation and growth prospects, access the comprehensive Pro Research Report available on InvestingPro.
According to Goldman Sachs, changes in used equipment inventory levels are a precursor to movements in used equipment values, typically leading by approximately 6-9 months, and new equipment production by around 12 months. These shifts are more modestly reflected in stock prices. The analysts believe that adjustments in used inventories are indicative of a significant imbalance between new equipment demand and actual supply, considering that the capital stock is significantly larger than annual production volumes. Trading at a P/E ratio of 21.95 and a high Price/Book multiple of 6.01, Deere’s valuation metrics suggest investors are pricing in significant future growth potential.
In other recent news, Decisive Dividends Corporation reported a positive fourth quarter for 2024, with a 5% increase in sales year-over-year and a 17% rise from the previous quarter. The company’s adjusted EBITDA grew by 2% compared to the same period last year, and free cash flow rose by 8%. Despite these gains, the dividend payout ratio remained high at approximately 96%, though it is anticipated to decrease in future quarters. The company has expressed optimism about its prospects, with plans to launch seven new products in 2025 and complete additional acquisitions.
Meanwhile, John Deere has partnered with Dovetail Workwear to introduce a new line of farmwear specifically designed for women. This collaboration aims to support female farmers by offering apparel that combines functionality and comfort. The collection is available for purchase on DovetailWorkwear.com and its Canadian counterpart.
In a separate development, a former Microsoft (NASDAQ:MSFT) Engineering Director discussed the competitive landscape of cloud services, highlighting that companies like John Deere receive substantial discounts on Microsoft Azure services. This indicates the importance of cloud services in supporting main workloads and development environments for businesses.
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